Poultry processors charged with wage suppression conspiracy

On July 25, 2022, the Antitrust Division of the United States Department of Justice (“DOJ”) filed a civil complaint in the United States District Court for the District of Maryland alleging that poultry processors, Cargill Inc. and Cargill Meat Solutions Corporation, Sanderson Farms Inc., and Wayne Farms LLC, have engaged in a decades-long conspiracy to suppress workers’ compensation at poultry processing plants by exchanging sensitive competitive information on wages and benefits and collaborating on remuneration policies. At the same time, the DOJ proposed a consent decree to settle the action with the defendants, in which the poultry processors agree to pay $84.8 million in restitution and the defendants are prohibited from engaging in certain behaviors for 10 years. This settlement follows several price-fixing lawsuits in the poultry industry.^[1] Although the settlement documents don’t mention it explicitly, it seems likely that the conduct at issue in this case came to light in one of the DOJ’s other investigations.

According to the DOJ complaint, poultry processors conspired with each other and with co-accused data consulting firm Webber, Meng, Sahl and Company, Inc. (“WMS”) for decades to exchange sensitive information about the competition for poultry plant worker wages, with much of the information current or future, disaggregated or identifiable in nature. Examples of information shared included compensation for hourly and salaried jobs in poultry plants and base wages for a variety of other poultry processing jobs. As a result of the exchange of information, poultry processors then collaborated and assisted each other in making compensation decisions.

The DOJ alleged that Cargill, Sanderson Farms and Wayne Farms are close competitors for employment labor services at poultry processing plants across the country and collectively possess buyer market power (power monopsony) in that relevant domestic labor market. The complaint alleged that the conspiracy and anti-competitive exchange of information distorted the competitive wage-setting mechanism for poultry processing plant labor and suppressed the wages paid to these employees in violation of the Section 1 of the Sherman Act. The complaint also noted 18 additional co-conspirators who allegedly conspired with the defendants but remained anonymous due to their inclusion in another ongoing DOJ investigation.

To resolve the DOJ’s competitive harm allegations, the Poultry Processing Defendants and WMS entered into a proposed consent decree imposing the following terms for the next 10 years:

• Cargill, Sanderson Farms and Wayne Farms are prohibited from sharing competitively sensitive information regarding compensation for poultry processing plant workers.

• Cargill, Sanderson Farms and Wayne Farms agree to collectively pay $84.8 million in restitution for poultry processing plant workers who were harmed by the conspiracy.

• WMS is prohibited from providing surveys or other services that facilitate the sharing of competitively sensitive information in any industry. WMS President G. Jonathan Meng is also subject to the terms of this consent decree as an individual.

The parties have also agreed to the appointment of a court-appointed compliance monitor to ensure that the poultry processing defendants comply with the terms of the consent decree. The Monitor will have broad authority to enforce compliance with all federal antitrust laws with respect to defendants’ businesses, and defendants will file regular antitrust compliance reports. The DOJ will have broad authority to inspect processor facilities and interview employees to ensure compliance with antitrust laws. The consent decree with Sanderson Farms and Wayne Farms also imposes additional restrictions on deceptive practices in poultry markets, including the use of a “tournament system” to adjust the “base payout” of the poultry farmer based on the performance of the farmer compared to other farmers.

The DOJ complaint and settlement are important in several ways.

• This is yet another reminder that antitrust authorities actively investigate and prosecute anti-competitive behavior that affects labor markets. We noted this increase in previous client alerts, highlighted by the DOJ’s first criminal prosecutions for wage-fixing conspiracies. Although it suffered losses in two of those cases at trial, the DOJ appears committed to its campaign to investigate anticompetitive behavior affecting labor and employment markets. We expect to see the DOJ pursue civil and criminal lawsuits in the future.

• The Sherman Act prohibits trade restraint agreements. Here, the agreement was to exchange information on salaries, not a direct agreement on the salaries themselves. A deal to cut wages would likely result in criminal prosecution.

• There aren’t many cases of information sharing, so this case sends an important message about how the DOJ views the legal elements of the complaint: it’s a violation of the rule of reason. , requiring claims and evidence of relevant markets and anti-competitive effects.

• Restitution here is an important part of the remedy. To our knowledge, this is the first settlement of a civil case from the Antitrust Division that included restitution in addition to the more traditional equitable cease-and-desist remedy.

• Salary surveys and other information exchanges are common activities for professional associations, hospital groups and other employers. Such activity can still be done in a compliant manner by following DOJ and FTC guidelines for the healthcare industry regarding similar conduct.^[2] Absent extraordinary circumstances, since the issuance of formal guidance more than 25 years ago, the federal government will not pursue exchanges of healthcare provider reimbursement information if plan-sensitive information of the competition is held by a third party, any information shared between competitors is at least three months old, and there are at least five suppliers providing the information and no supplier may represent more than 25% of the information in question, that is that is, competitors may not reverse engineer to understand a competitor’s information. It was thought that this health care advice could be applied generally.^[3]

Going forward, companies should take a close look at their antitrust compliance policies relating to the exchange of potentially competitive sensitive information, particularly with respect to salaries paid to employees. As we have seen in this and other cases, any inappropriate exchange of information is not filtered simply by the use or presence of a third-party consultant, who may themselves face liability antitrust for facilitating such an exchange. The DOJ’s complaint can be interpreted as alleging that the information exchange itself could constitute a stand-alone violation of Section 1 of the Sherman Act – the DOJ’s Competitive Impact Statement, which has not yet been tabled, could shed light on this point. In any event, although this particular legal issue is not addressed in this case, companies should keep themselves informed of the judicial treatment in subsequent cases which may provide additional clarity on how such behavior would be analyzed by the courts. courts.

FOOTNOTES

^[1] United States v. Penn et al., case no. 1:20-cr-00152 (D.Col.)

^[2] Health Care Antitrust Enforcement Policy Statements, Statement 6, https://www.justice.gov/atr/page/file/1197731/download

^[3] Bloom, Michael. “Information Exchange: Be Reasonable,” Bureau of Competition, Federal Trade Commission (December 11, 2014), https://www.ftc.gov/news-events/blogs/competition-matters/2014/12/information-exchange-be within reason